The MacroMicro Crude Oil Fundamentals Index, a measure for assessing crude oil price sentiment, has been on an upward trend in recent months. Since the onset of Q3, oil prices have soared by nearly 30%, with WTI (West Texas Intermediate) futures breaking past the $90/bbl milestone. Factors such as the Israel-Hamas war and the decision by major oil producers to extend production cuts suggest supply and demand dynamics are poised for more tightening. As oil reserves deplete rapidly, there's been a significant increase in financial inflows. Both the Crude Oil COT Index and the Managed Money Net Position have risen to their highest points since the commencement of the Russia-Ukraine war in 2022. Let's explore MacroMicro's in-depth analysis on the future of oil markets.


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Saudi Arabia extends production cuts to the end of the year, while Russia bans gasoline and diesel exports

Global crude oil supply prospects suffered a double whammy in September, as Saudi Arabia prolonged its production cuts for an additional three months, while Russia imposed a ban on petrol and diesel exports. The New York Fed's Oil Price Composition Model suggests the decisions taken by OPEC+ producers will continue to cause supply disruptions for the remainder of 2023. Nevertheless, U.S. shale oil production is helping offset lower global supplies, with  U.S. daily crude output nearing an all-time high. Moreover, the EIA expects even stronger U.S. shale production in 2024, but U.S. production will not be enough to overcome lost output from Saudi Arabia and Russia keeping global crude oil balances tight in the near term.

Oil Price Composition Model

Israel-Hamas war drives up oil prices

On October 7th, the Palestinian militant group, Hamas, unexpectedly launched attacks, firing several thousand rockets into Israeli territory. Israel promptly declared a state of war and retaliated against the Gaza Strip, igniting the latest flare-up in the Israel-Palestine conflict. Oil prices have steadily risen, registering a nearly 10% increase since October 6th. Given that neither Israel nor Palestine are major oil producers, and their combined production is almost negligible in the global demand context, this surge is not due to tangible supply-demand shifts. The price hike primarily reflects two factors:

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